Does Higher Education Perpetuate Income Inequality? How About Lottery Scholarships in NM?

A strong and comforting belief in America is that education, not the proverbial Colt 45, is the great equalizer.  Go to college, work hard, keep your nose clean, and you too will end up with the three-car garage, a healthy retirement account, and a modest-sized sailboat docked in San Diego Harbor.  Increasingly, evidence suggests that, far from providing access to equal opportunity and thereby leveling the playing field, government student-aid policies perpetuate and reinforce existing income inequalities.  Rising tuition, fees, and other higher education costs, combined with a severe decline in federal student aid (in real dollars) in recent years, have made it much more difficult for students and parents of modest means to go to college.

The key here is the probability that the poor will attend college, and that those poor who do enter college will graduate.  According to a recent study (click here) (by the Pell Institute for the Study of Opportunity in Higher Education and the Univ. of Pennsylvania Alliance for Higher Education and Democracy), only 45% of dependent students whose parents are in the bottom quartile of income will enroll in college between the ages of 18 to 24.  But of those students whose parents are in the top income quartile 81% will enroll in college, and the middle quartiles are in the 60-something percentiles.

But inequality also continues after college enrollment, affecting the probability of graduation.

In a blog (click here) published on February 24 Sandy Baum, from the Urban Institute, compiled the table above using data from the US Department of Education (click here), showing a BA six-year graduation rate of only about 25% for students from low income families, compared to a graduation rate of 59%-62% for students from high income families.  Again, the affluent finish more frequently.

What does government policy and financial aid have to do with it?  Pell grants, the federal program for low-income students, have not kept up with the cost of inflation, let alone the cost of attending college, which has risen much faster than inflation.  In 1975, according the Pell Institute study (page 19 and 20), Pell grants were high enough to cover about 67% of the cost of attending college.  In 2012 Pell grants covered only about 27% of the cost of attending college.

Incidentally, the Sandy Baum post (click here) was critical of some of the data used by the Pell Institute study, and there is a lively and healthy debate in higher education circles about the full impact of college training on social mobility in the U.S.  The book is not closed, and if the weight of evidence suggests things are worsening for the whole, there are many exceptions in which some low-income students do well in spite of the trends.

New Mexico

Since the lottery scholarship began in New Mexico students of all income levels have been eligible for the scholarship. With the demand for lottery scholarships at nearly $70 million, but a revenue stream of only about $40 million in a poor state (New Mexico ranks 3rd in the nation in poverty), many have advocated adopting a means test for eligibility to preserve lottery solvency and fairness.   As it turns out, according to NM Higher Education Department data, at least 29% (see NOTE below) of lottery scholarships in 2012 were given to students with family incomes higher than $84,000.  The average family income that year in New Mexico was about $59,000. By failing to adopt any kind of means test, in effect, the state's lottery scholarship program has (a) diverted very scarce money from where it is most needed to subsidize students who don't need it; (b) acted to perpetuate, reinforce, and perhaps even speed up, the trends toward inequality in educational outcomes discussed above.  Incidentally, income inequality in New Mexico is high and getting higher, arguably the highest in the nation--see here, and my blog of February 24.

One argument in favor of maintaining the income-neutral status of the lottery scholarship program has been that if relatively well off students don't get the scholarship, they might get their parents to send them off to better schools outside the state, thereby possibly losing the future talents of these students.  But even if we accept that argument (I have serious doubts about the magnitude of this effect), it still implies that the state needs the future talents of well-off students (who will get educated whether they get a lottery scholarship or not) more than it needs the potential talents of less-well-off students who might not otherwise get a college education at all.  What New Mexico needs is a higher proportion of our population having a college degree, and whatever the lottery scholarship can do to raise that number, is good policy.

Quiet discussions are underway in the legislature about adopting a means test this year for lottery recipients.  Let's see what happens!

NOTE:  29% is almost certainly an underestimate.  Applicants for the lottery scholarship are not required to fill out a FAFSA (family income) report required for Pell and other forms of student aid.  Lottery scholarship applicants who do not fill out the FAFSA, it can be presumed, are much less likely to qualify for Pell and other low-income forms of aid.  Using a conservative estimate, if half of those students who did not fill out the FAFSA are at the $84,000 and above income level, this raises the 29% to 34%.  Thus, a conservative estimate suggests that fully one third of lottery scholarships go to families earning $25,000 more than the average family in New Mexico.